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What is financial goal and how to set it for yourself
As you all know, goals can be long-term, medium-term and short-term.
From the point of the personal finances which influence on our way of life directly, these goals can be named also as goals of financial protection, financial comfort and financial riches. Unfortunately, most people very rarely succeed to jump over this order of goals and for example at once jump from the category of protection into the category of riches.It happens because every category of financial position not only reflects in itself the level of certain profit, and also influences person’s world-view, his conduct in life, presence of experience and skills of financial resources management, self-confidence and helps to support such state for a certain amount of time.
We will explain it a bit more detailed on examples.
1. Step-by-step passing of all these goals is typical for most people. In youth a person who finishes his education, enters in an adult life and begins to work intensively. At this moment he does not have assets, but there is zeal and physical possibilities to work a lot and fruitfully. With the accumulation of knowledge and experience, his financial status begins to improve, and he is ready to have a family, to purchase a house, and to begin setting aside money for a pension. This classic and in principle correct scheme works for most normal people! There is nothing new in it. The new thing is that by setting yourself a goal, you try to reach it, and in this case, you will achieve much more, and you will treat with understanding everything that you do, rather than spontaneously use a simple scheme without the clear picture of what you want in the end and what will be needed for it, what skills additionally you’ll need to develop in yourself.
2. The second type is transition at once into the category of comfort, skipping the stage of protection. Such examples are not very rare in our life. For example, when young people begin to work and get the first success, they do dizzy projections on future, starting to be obsessed with the idea of comfort, and they begin to grow borrowings, getting instead of satisfaction of the desires of a comfort, new expensive cars. But in the case of personal failures, crisis situation at the market, they can in a moment be deprived of it and find themselves even not in the category of protection but in the much worst financial position from which it is very difficult to get out.
3. Third type of people meets rather rarely. These people are businessmen by nature, people of creative professions and sport, which can spend years on advancement of their ideas or promotion of their talent and then at one swoop they can find themselves in the category of riches, skipping all other categories. Some of these people can return to their previous financial states, because they do not have sufficient experience to command such a big volume of assets and to keep it for a long time. Most people who choose this type of a goal, in most cases never reach it and they are doomed to eternal deplorable existence, because they do not have time and strength for the formulating of a goal that is ordinary for the most people.
Long-term goal
Long-term is the most important, because it will accompany you for years. You will take the lead over it or deviate from this goal, but it is necessary to see it before your eyes all the time and clearly understand for what you’re living and what you must provide yourself in the future with.
Possibly, now you will not be able to imagine your last plan, the plan of financial riches, because for many people the idea of riches can be different, and also you will not be able to evaluate exactly how your world view and attitude would change towards the world as you reach your goals.Therefore it will be better for you to go step by step from today to riches by setting yourself intermediate landmarks on which you will stop and analyze next steps and future goals.
One of the variants of a long-term plan will be a plan combining two previous plans, of protection and comfort. We made up such a plan in a model. To build such plan you should take as a basis the amount of monies, on which you will be able to live in the future, not working, using a passive profit only.
Passive profit is a profit which you get from placing your financial resources in different financial instruments: money deposits, bonds, pension programs, dividends from real estate, percents, profit from the change of share prices, rent profit from the real estate that you own.
For determination of necessary size of assets in the future, which would be able to bring you the proper interest return, you must set three sizes.
The first one is the profit itself. For this purpose you should imagine today, with what size of assets you can live a month according to the principles of protection and comfort, in other words not to squander your money away. Because it will happen in the long-term period of time, and at that time you will not have additional obligations, appropriate to young age, such as studies of children, evening-parties with friends and so on.Therefore such sum must include in itself the coverage of necessary expenses plus the small elements of comfort.
Second size it is the time that you need for the obtaining this financial goal. This time, not including casual factors, such as winning of large sum in a lottery, unexpected large inheritances, for most people usually takes from 15 to 20 years.This is actually the most productive period of time, in which, with a small capital and using the different sources of profit, including work for hire, simultaneously you will be able to accumulate assets, executing the next stage of the long-term plan and at the same time studying investing, because studying this science, requires the same time, as studying of any profession, it takes up to 5 years,in order to achieve your long-term goal in the future, namely the accumulation of necessary assets for providing yourself at the expense only of sources of passive income, earlier having learnt managing them, as professionals do.
It doesn’t mean that after reaching your goal and lasting of so many years you will have to work a lot, because setting yourself such a goal and dedicatedly following it, for selected 15-20 years, you firstly might achieve much more and could get into the category of rich people, or you will learn perfectly the technique of the passive investing and will save a necessary capital, that you won’t have to waste so much time on this work,in order to get a good result which will enable you to feel protected and comfortable.
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